Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

5 Ways to Wreck Your Retirement

In the retirement game, sometimes the best offense is a good defense.

Isn't it amazing how analogous investing can sometimes be to the sporting world? I'm generally partial to baseball references, but football can also be fitting at times. For instance, whenever a young or inexperienced quarterback is first thrust into the spotlight, he is usually given this seemingly ambiguous bit of advice: "You don't have to win the game, just don't lose it." By that, coaches are reminding the player that he doesn't need to be the next Peyton Manning for his team to emerge victorious. Sure, throwing six touchdown passes would help, but it is more important to avoid the costly fumbles and interceptions that can quickly become insurmountable.

Successful investing is similar. On the gridiron, some well-executed plays are destined to wind up in the end zone, just as some astute stock picks will produce handsome gains. Other investments will be less profitable, but still good for a first down at least. Unfortunately, a few ill-advised decisions will sometimes resemble a blocked punt from your own two-yard line. Not good.

Solid game plans are not constructed around one big play or one skyrocketing stock, but a succession of smaller gains -- although big gains are certainly welcome, too -- that add up over time. Long-term investment success typically comes through handoffs to Procter & Gamble(NYSE:PG) rather than connecting on a "Hail Mary" with Taser International(NASDAQ:TASR). Recently, Bob Bobala drew up a few Xs and Os from the offensive side of the playbook. Remember, though, that sometimes the key to marching down the field is to avoid getting sacked for a big loss.

Mistakes that can knock you right out of the game1. Loading up on company stock: In my former life as a financial advisor, I would often have clients slide their quarterly 401(k) statements across my desk, wanting to know if their asset allocation was appropriate, or if they had selected the best funds available. Without a doubt these are important decisions, but the first step is deciding what percentage (if any) should be devoted to your own company's stock.

It's natural for many people to believe strongly in their firm's long-term prospects, but don't get carried away. Rarely would I recommend stashing more than 20% of your money in this option. Just prior to the collapse in telecom stocks, I met with several prospective clients who had virtually their entire life savings invested in Lucent(NYSE:LU). My warning that a slowdown in the industry might wipe out their savings -- not to mention their jobs -- fell on deaf ears. Lucent proceeded to plummet more than 90%, reducing their accounts to pocket change and delaying their retirements indefinitely. Investing in your own company is fine, but do so prudently. Even if your company is generous enough to give you a 10% discount when buying its stock, that discount won't compensate for a stock that's 40% overvalued.

2. Relying on Social Security:"In just 14 years we will begin paying more in benefits than we collect in taxes.Without changes, by 2042 the trust fund will be exhausted. At that point, there will be enough money to pay only about 73 cents for each dollar of scheduled benefits."

That is not my personal prediction; those words were written verbatim on the Social Security statement I received in the mail last month.

Changing demographics are increasingly taxing (pun intended) the system, which, if left unchecked, is headed toward insolvency. Privatization -- a topic open to debate -- may help to fill some of the gaps. Even if an ironclad solution is found, Social Security was never intended to be more than a safety net. The average benefit of $11,000 per year is probably insufficient to fund the lavish retirement lifestyle many of us envision.

3. Not living below your means: This simple philosophy has long been a tenet of Foolishness. Some people are spenders and some are savers. That is a fact of life. I probably have a nickel for every dollar I have ever earned, while my brother likely owes a nickel. Some people rake in seven figures annually without saving a dollar, while others with meager salaries and modest lifestyles can sock away plenty (they usually wind up being the millionaire next door).

Those who are able to sacrifice by exercising some spending restraint today will reap the rewards many-fold tomorrow. That $5,000 plasma television from Best Buy(NYSE:BBY) would look fantastic in your living room, but how would an extra $27,000 look in your brokerage account? That's what the same amount would be worth in 25 years, assuming a 7% annual compounded return.

4. Ignoring fees and expenses: Every investor should be cognizant of the fees, expenses, and taxes that will gradually erode the value of an account. In the near term these costs may seem minimal, but over extended periods of time (like saving for retirement) they can take a serious bite out of your money. Certainly some great investments, or, by extension, investment professionals, may be worth the added expense. All things being equal, though, those who make a concerted attempt to minimize the impact of trading commissions, fees, mutual fund expense ratios, etc., will come out ahead.

I'll borrow a hypothetical example from the Motley Fool Retirement Center: An investor who saves $100 monthly from age 25 through 65 while earning the long-term market average of 10.4% will have accumulated $349,100 (assuming he loses 2% annually to expenses). However, had that same person shopped around to find similar performance from an investment that only charged 0.4% per year, he or she would cruise into retirement with more than $632,000.

Needlessly paying higher expenses is like being called for a five-yard "delay of game" penalty, a seemingly small infraction that, if it happens too often, can completely stall your progress. Don't get flagged for this one any more than necessary.

5. Failing to plan: How much money will you need to ensure a comfortable retirement? Few people that I hit with this simple query have an informed response. Even ballpark numbers vary greatly from person to person based on personal circumstances: life expectancy, risk tolerance, lifestyle, future tax bracket, philanthropic intent, and other variables. Throw in things like ever-changing tax legislation and the unpredictable effects of inflation and the picture quickly becomes even hazier.

The old rule of thumb used to dictate that retirees would need about 75% of their former annual income after they stop punching the clock. While this number may work for some, others (such as those who yearn to travel extensively) may need much more. It's hard to know where to aim if a target hasn't been set. Perhaps the great Yogi Berra said it best, "If you don't know where you are going, you might not get there." Fortunately, there are an abundance of tools available to help the wayward investor determine a reasonable, quantifiable goal, and outline a road map to arrive there.

Two-minute warningAt the onset of retirement, when the game enters its most critical phase, guarding against the onslaught of a last-minute market blitz is of utmost importance. Protecting against a downturn in the market is always necessary, but at this stage becomes absolutely vital. Not only will you likely have more money to protect at this point, but with retirement just around the corner, there is no time to make up lost ground -- unless, of course, you don't mind working a few more years.

Sidestepping this risk will be a little easier if you have made a few course changes along that road map, such as revising your portfolio to include greater allocations of cash and fixed income investments. Now is the time to shift emphasis away from asset growth and toward asset preservation. After all, sometimes it's not the return on your money that matters, but the return of your money. That being said, there is also a risk of being too conservative. Life expectancies are climbing, and hence nest eggs are being stretched ever thinner, so stuffing all that cash under the mattress can also work against you.

Whether you just received the opening kickoff or are closing in on the final whistle, the five mistakes above stand as linebackers ready to thwart your forward progress. Avoid them along the way and you will be likely to enter retirement with many more points on the scoreboard.

Need a financial ally you can trust? The Fool's resident retirement expert, Robert Brokamp, can help steer you toward a comfortable retirement. HisRule Your Retirementnewsletter is available on a free-trial, no-obligation basis.